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Employment Good Faith And Fair Dealing

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The Covenant of Good Faith and Fair Dealing

When an employee has an employment contract, whether express or implied, that contract contains a covenant of good faith and fair dealing. This means that you owe the employee a duty to act in good faith and to deal fairly with him/her. The covenant goes both ways, meaning the employee has the same duty to you.

What Does it Mean to Act in Good Faith and Deal Fairly with an Employee?

The duty you owe an employee with an employment contract requires you to treat him/her fairly. If the employee has a written employment contract, it likely has provisions as to what circumstances you can terminate the contract. Acting in good faith means that you would honor these provisions and not terminate the contract for other reasons. If the employee's contract is implied, the covenant of good faith and fair dealing requires you to only fire the employee when you have good cause.

What Is Good Cause?

In order to have good cause, you must have a legitimate reason for firing the employee. This usually means that the reason must be job or business related in some way. For example, if an employee brings a gun to work you have good cause for firing him/her. On the other hand, you don't have good cause to fire an employee because he has illegitimate children. Other examples of good cause include:

  • Poor work performance (such as low productivity, showing up late, missing meetings)
  • Harassing other employees
  • Threats of violence
  • Stealing from work
  • Insubordination
  • Revealing trade secrets
  • Lying to supervisors and other forms of dishonesty

Other Tips about the Covenant of Good Faith and Fair Dealing

It is important to note that this covenant applies to all aspect of employment, not just terminating a contract. For example, if there are provisions as to pay or benefits in a written contract, you must honor those as well as any other provisions. It takes serious wrongful conduct to violate the covenant. Some examples include:

  • Firing an employee just before his/her pension vests so you don't have to pay
  • Making up reasons for firing an employee when you are just trying to replace the employee with cheaper labor
  • Firing an employee in order to prevent him/her from collecting commissions

I'm Confused about My Duties under the Covenant of Good Faith and Fair Dealing, Do I Need a Lawyer?

An experienced employment lawyer can inform you of what duties you owe your employees and what rights you have as well. Because employment law is always changing, your duties change as well. A knowledgeable employment lawyer will be up to date on the latest laws and can advise you accordingly.

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 06-06-2012 04:09 PM PDT

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